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Relief from Crushing Student Loan Payments

Brian Levine, Deputy Domestic Policy Advisor to the Vice President, fleshes out a proposal from the President to put a cap on student loan payments.

On January 25th, the Middle Class Task Force unveiled several initiatives designed to relieve the strain on family budgets, including a cap on student loan payments.  A few days later, the President talked about this student loan proposal during his State of the Union address.  The President’s words generated a lot of interest and excitement, so we wanted to tell you a little more about our plan.

Over the past three decades, college tuition has grown ten times faster than real median incomes for families with children. So it’s no surprise that about two-thirds of graduates take out loans to pay for college and their average debt is over $23,000.  But we didn’t need statistics to understand how challenging it can be to pay for college; the Vice President and other members of the Task Force heard about it directly from students, parents, faculty and administrators when we held meetings at Syracuse University and the University of Missouri-St. Louis.

We are proposing to make federal student loans more affordable by limiting a borrower’s payments to 10 percent of the income he or she has left over after covering basic expenses. Here is an example:  The monthly payment for a single borrower earning $30,000 who owes $20,000 in loans would be $115 a month, compared to $228 a month under the standard 10-year repayment plan. 

Our proposal has been praised by a number of student aid experts. According to Dr. Michael Lomax, the President and CEO of UNCF, this change “will decrease the loan payments of hundreds of thousands of low-income borrowers with significant student loan debt, lightening the load of many Americans and enabling them to get the education they need, and our nation needs them to have.”

Debt can be especially difficult to manage for borrowers in low-paying public service careers, as well as those who have lost their jobs.  Lauren Asher, the President of the Institute for College Access and Success (TICAS) noted that “this is a well-targeted and well-timed change that would help people who are struggling to stay afloat financially.”

In addition to lowering monthly payments, we are proposing to keep the total cost of loan repayment manageable by forgiving all remaining debt after 20 years of payments, or 10 years of payments for those in public service work.  As Mark Kantrowitz, the publisher of said, the “acceleration of the loan forgiveness will ensure that borrowers are not still paying back their own federal student loans when their children enroll in college.”

These changes build on the Income-Based Repayment (IBR) plan for student loans that was implemented last summer.   Lauren Asher of TICAS explained that IBR “was supported by a broad coalition of student, parent, loan industry, and higher education groups to make college more affordable and accessible,” and our proposal is “a way to make the program even more helpful to responsible borrowers.”

This initiative complements other key pieces of the Administration’s agenda, like extending the American Opportunity Tax Credit for college expenses and passing legislation, which is currently before the Senate, to reform student lending to eliminate tens of billions of dollars in wasteful subsidies to banks. The savings will be used to expand Pell Grants and invest in community colleges.  Together, these proposals will make it easier for millions of Americans to pursue their college dreams. 

Brian Levine is the Deputy Domestic Policy Advisor to the Vice President